Still confused.

daisyrose

I have been reading all that I can but its just confused me more. I am interested in your views and decisions and have a few questions.

Is there an option to change providers when in drawdown or would it be costly?

Take the tfls or leave it invested in the pension?

Are there any rules for taking the tfls later after drawdown has started?

Take 4% of drawdown and pay tax or take 3% and not pay tax?

MarkCarnage

daisyrose wrote: »

I have been reading all that I can but its just confused me more. I am interested in your views and decisions and have a few questions.

Is there an option to change providers when in drawdown or would it be costly?

Yes, and it shouldn't be.

Take the tfls or leave it invested in the pension?

A personal choice depending on circumstances, but you don't need to take it all in one go, you can phase it into drawdown and take a tranche of TFLS each time. This link explains it quite well I think
https://www.youinvest.co.uk/pensions-and-retirement/accessing-your-pension/tax-free-cash

Are there any rules for taking the tfls later after drawdown has started?

My understanding is that once you've moved a tranche into drawdown, you can't take TFLS from that portion, unless you do it at outset.

Take 4% of drawdown and pay tax or take 3% and not pay tax?

Not sure what you are meaning here? Presumably in your case, taking 4% of your drawdown 'pot' would take you over your personal allowance but 3% would not? All income withdrawals from drawdown are taxable at the recipient's marginal rate, which might be 0% or 45%.

Responses above. Some of the questions are quite hard to answer without knowing specific circumstances.

Linton

daisyrose wrote: »

I have been reading all that I can but its just confused me more. I am interested in your views and decisions and have a few questions.

Is there an option to change providers when in drawdown or would it be costly?

You can change providers when in drawdown, and there may be a relatively small charge to cover the costs. Sometimes the receiving SIPP may pay the costs.

Take the tfls or leave it invested in the pension?

You can take the TFLS or leave it invested. But see the next answers...

Are there any rules for taking the tfls later after drawdown has started?

You cannot take any taxable money before you have taken the corresponding TFLS. So if you had a £100K pot and had not taken the TFLS you could not take a fully taxable drawdown payment. If you had taken £10K of the tax free £25K you could take up to £30K of taxed money.


To be pedantic I believe you could take taxable money but then you loose the right to the tax free amount, so its not a very good idea.

Take 4% of drawdown and pay tax or take 3% and not pay tax?

No - any taxable payments from a pension go through PAYE. For example if your pension pot is £100K and you wanted to withdraw £4K, you could take the £25K tax free and then a subsequent £4k would be taxed or you do have the option to include the TFLS in each drawdown. For example, if you have never taken the TFLS you could withdraw £4K, £1K of which would be tax free and £3K would be taxed. This latter option is known as UFPLS.

Albermarle

Is there an option to change providers when in drawdown or would it be costly?

As said should be OK but I know from my SIPP provider you can not transfer a pension in drawdown online - you have to talk to them and there is a minimum transfer amount . So will be some variation from provider to provider so you would have to do some research.

Take the tfls or leave it invested in the pension?

The professionals on the forum usually say if you don't need it leave it where it is, but not everyone agrees . The main point is do not withdraw it and then wonder what to do with it .

daisyrose

Thank you. More reading but it was helpful thank you. After your replies I have realised that I'm not as confused as I thought but just can't decide on the best way to start taking the pension.

The position is that its time to take the pension and we now need the income but find it difficult to decide which way to do it. The flavoured option is or was to take the 25% tfls and start a monthly drawdown equating to around £3500 p.a and to use the tfls as a pension top up but where to invest it is also a problem for me. This would bring total income to just under the personal tax allowance. I have no problem paying tax so I was wondering if taking around £4000 p.a. would make much of a difference cost and pension wise.I want to take the best option to maximize the returns taking into account any sipp charges and tax to be paid.
I thought that I read that UFPLS was not always a good option so I think that I have decided against it.

Linton

daisyrose wrote: »

Thank you. More reading but it was helpful thank you. After your replies I have realised that I'm not as confused as I thought but just can't decide on the best way to start taking the pension.

The position is that its time to take the pension and we now need the income but find it difficult to decide which way to do it. The flavoured option is or was to take the 25% tfls and start a monthly drawdown equating to around £3500 p.a and to use the tfls as a pension top up but where to invest it is also a problem for me. This would bring total income to just under the personal tax allowance. I have no problem paying tax so I was wondering if taking around £4000 p.a. would make much of a difference cost and pension wise.I want to take the best option to maximize the returns taking into account any sipp charges and tax to be paid.
I thought that I read that UFPLS was not always a good option so I think that I have decided against it.

If you need a cash lump sum such as for an emergency fund or cash buffer and dont have one then taking the TFLS would seem to be a good idea. Otherwise taking your pension under UFPLS would give you the option of a larger drawdown without paying tax.


Whether you should take £4K/year rather than £3500 depends on the size of your pension pot - the size of the pot required is proportional to the drawdown so a £4K drawdown would imply a 15% higher minimum pot size. If you are well within sensible drawdown limits then that isnt an issue. Maximum tax efficiency is achieved if you can just match your tax allowance putting any unused income into an S&S ISA. If you have to go over the limit anyway because of other income then it doesnt matter.

daisyrose

I don't have any immediate need for the tfls. My thinking is to use it as a pension top up but also as a bit of protection that if the value of the sipp fell a lot the tfls would be safe out of the sipp but of course as a S & S isa would not be and you never know if you might have a use for it in the future. Also I am thinking about keeping charges to a minimum. Is UPFLS a good option?

IanSt

daisyrose wrote: »

Also I am thinking about keeping charges to a minimum. Is UPFLS a good option?

Well that depends on which provider/company it is with, how much you have in there and also how frequently you want to take money out.

For me, UFPLS is the best and cheapest way to draw out my money from my main pension, but that is not to say that it would be for you.

There have been various posts in this forum about the costs of running a pension, so I'd advise you to take a look at those. Though keep in mind that many of those posts concentrate on the accumulation part of building up a pension and those costs rather than when you are in the drawdown of income stage.

Albermarle

Some providers allow you to take the TFLS in stages .
So for example if you had a pot of £100K . You can crystallise £20K . Take £5K as tax free and £15K goes into drawdown , to be taken as taxable income in stages either at the same time or later.
Then do the same again later .
It is similar to UFPLS except that it can give a bit more flexibility as you are not forced to take the taxable income at the same time as the tax free income .
Phased flexi access drawdown I think is the correct name . Not possible with every provider as far as I know.

AnotherJoe

daisyrose wrote: »

Thank you. More reading but it was helpful thank you. After your replies I have realised that I'm not as confused as I thought but just can't decide on the best way to start taking the pension.

The position is that its time to take the pension and we now need the income but find it difficult to decide which way to do it. The flavoured (cherry? ) option is or was to take the 25% tfls and start a monthly drawdown equating to around £3500 p.a and to use the tfls as a pension top up but where to invest it is also a problem for me.
Then not doing that would seem to be a good idea !

This would bring total income to just under the personal tax allowance. I have no problem paying tax so I was wondering if taking around £4000 p.a. would make much of a difference cost and pension wise.I want to take the best option to maximize the returns taking into account any sipp charges and tax to be paid.
I thought that I read that UFPLS was not always a good option so I think that I have decided against it.

If its not always a good option, that means it sometimes it is. Right?
So, get over your initially misplaced decision that because its sometimes not the best that means its always not the best, and look at whats best for you.
If you dont need and dont know what to do with the TFLS then UFPLS seems to be, on the little info you've given, probably the best decision.
Are you in receipt of any other pensions currently? What are you living on? How long til SP or other pensions kick in? That will guide what is best in terms of tax.

daisyrose

Thank you everyone for your views,explanations and pointing out my typo. It's all a bit taxing for me. We have been living off o/h state pension and very small workplace pension in total about 10k per year topped up with my redundancy as and when required.
I have to look at all of the options more thoroughly than I have and then make the decision. I can feel a HOW coming along!